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Markets, Volatility and Crisis: A Conversation with Tony Norfield, Michael Roberts and Paula Bach

The swings in the stock markets in the United States, Europe and Japan this past week have reignited fears of a financial meltdown. We discussed these recent developments and the immediate prospects of the global economy with three renowned Marxist economists.

December 11, 2018

Tony Norfield is a British economist, author of the book “The City: London and the Global Power of Finance”. You can follow his blog Economics of Imperialism.

Michael Roberts is a British economist, author of the book “The Long Depression: Marxism and the Global Crisis of Capitalism”. He writes regularly in his blog The Next Recession.

Paula Bach is an Argentinian economist specialized in international economics, author of multiple articles on theory and geopolitics of global economy. She is a columnist for La Izquierda Diario and a member of the Partido de los Trabajadores Socialistas (PTS).

It is difficult to precisely predict when a recession will occur, but there are certain signs, such as the flattening of the “yield curve,” that indicate we might be close to a new deceleration. Financial risk has certainly been intensified this past week by the volatility of stock markets across the board. What perspectives do you see for the U.S. economy?

Michael Roberts: The major capitalist economies appear to be slowing down after a short acceleration in 2017 following a near mini-recession in 2015-16. The bearish nature of global stock markets reflect the worry that economies may be slowing down just as interest rates are being hiked by the U.S. Fed and other central banks. The inverted yield curve reflects that. And the step-up in the trade war between the United States and China is another factor. Meanwhile, corporate debt levels are back (and above) that seen before the global financial crash.

If, however, we look at corporate profits, both in the United States and globally, there is still some positive momentum, particularly the one-off boost in the United States from Trump’s corporate tax cuts. So I don’t expect this current very long (but very weak) expansion since 2009 to end within the next six months.

Paula Bach: A slowdown of the U.S. and world economy in 2018/2019—anticipated since the beginning of this year—is practically a fait accompli. A sharp slowdown or even a recession will likely occur in 2020, if not sooner. This confirms that the relatively stronger growth in the major economies since 2017 was a cyclical phenomenon that does not essentially change the particular weakness that has been characteristic of the recovery after the 2008-9 crisis. It is also significant for the United States, where it is clear that the “boom” that has been widely advertised by Trump and several mainstream media outlets, is largely “fake news.” The U.S. economy grew at a higher rate than its average since 2010, but this was based on the short-term effect of the tax cuts for the 1%. But most of the profits obtained abroad and repatriated to the United States led mainly to stock buybacks, with very few increases in real investment and productivity, which are “fundamentals” of the economy.

This conclusion is important for workers because it shows that capitalism is stuck in a critical long-term situation and that, both in the “center” and in semicolonial or dependent countries like ours (Argentina), it will try to restore itself through increasingly aggressive attacks on the living conditions of workers and low-income sectors. It will do this through labor and social security reforms, cuts in public spending, wage reductions, debt repayment requirements, etc. It’s an important conclusion because it indicates that a “reformist” period is unfeasible both in the central countries and in the capitalist periphery. With regard to stock market volatility, I believe it depends highly on the economy’s structural issues. The flattening of the yield curve expresses several combined factors. These include the corporate debts that have been growing since the end of the recession, the interest rate hikes that make these debts increasingly risky and the commercial tensions with China that threaten the profits of big corporations.

Tony Norfield: I will take the liberty of raising a question about the question that is asked: What does it matter if the pace of U.S. economic growth is a little bit faster or slower in the next year? As long as there is not a slump, then I think it is of little relevance. Of far more relevance is U.S. policy on trade and related issues that will have a bigger impact, both domestically in the United States and internationally. While the United States is the biggest, most closely observed and data-detailed economy, it nevertheless accounts for just under a quarter of the global economy. The EU countries are another 20% or so, while China alone is around 15%. What makes the United States more significant “economically” is when its policies disrupt the rest of the world!

The detention of Huawei CFO Meng Wanzhou has revived fears around the China-U.S. rivalry. In what direction do you see the trade war going?

Tony Norfield: U.S. worries about Chinese competition have been building up for some time. At first, these were mainly centered on Chinese foreign investments in Africa, Latin America and Asia. Now they are more focused on the threat China poses to the U.S. lead in many areas of modern technology. Huwaei is a key example of this, being the world’s number two producer of smartphones (behind Samsung and ahead of Apple) and the world’s leader in developing 5G mobile technologies. In this latter area, the United States is nowhere. As a result, the United States tries to persuade the other members of the “5 Eyes” Anglosphere—Canada, the UK, Australia and New Zealand—and other countries, to boycott Huawei’s products (actually, Australia already did so in 2012). What makes the attack on Huawei more interesting now is that it is linked to U.S. sanctions on Iran, which the Europeans do not like and are trying to get around. The U.S. anti-China policy is a key part of how it will try to retain its status as the world’s major power, and this is not likely to change. Political differences between the major countries will also become more fully reflected in their trade policies in the years ahead.

Paula Bach: Right now, the arrest of Huawei’s CEO is undoubtedly another means by which the United States is pressuring China to comply with the conditions of a negotiation conducted here in Argentina at the recent G20 summit, the terms of which are not very clear. However, the attack on Huawei, which is the second-largest smartphone manufacturer in the world, and which is trying to develop 5G technology before the United States, is also proof that the “war” between the United States and China has more to do with technological supremacy, with the struggle for global areas of capital accumulation and, ultimately, for world hegemony, than with trade. In fact, I believe that the trade war—which large U.S. corporations don’t love, as demonstrated by stock market fluctuations—is primarily a means of deceiving the United States’ losers in the game of globalization, to whom Trump has made the false promise of a return of investment, production and quality employment. But the commercial character of the war conceals a strategic objective that actually unites the entire economic elite—including the Democratic Party—which believes that it is time for a more aggressive imperialist policy toward China, demanding an end to “patent theft,” greater freedom for U.S. investments and the opening of its markets. This has a lot to do with the weak dynamics and few profit-making opportunities of global capitalism, which have resulted in weak growth, as explained in the answer to the first question.

Michael Roberts: We have this temporary pause for 90 days before the ratcheting up of the tariff war between the United States and China. Trump talks about a deal one day and the next day the opposite and the arrest of the Huawei chief is an indicator of pressure being applied on China by the United States. That will be resisted. Even if a deal is made next March, it will only postpone a new breakdown further down the road. The United States is determined to stop China’s technology takeover and China’s potential move to one-to-one status with the United States over the next 10 years. In turn, China will look for ways to resist and avoid any change in their trajectory. So the trade war will persist and intensify.

A major takeaway from the G20 summit is that economic powers such as the United States are no longer interested in maintaining global coordination and cooperation. Do you think the new tendency toward protectionism and economic nationalism can preclude a vigorous response to an eventual slump, such as the one given to the 2008 crisis?

Paula Bach: One of the most profound consequences of the 2008-9 crisis is shown by the weak recovery, which exposes the falsehood that “globalization” is an undertaking that benefits all sectors and countries. Low growth rates, credit limitations for families, extraordinary levels of debt and the stagnation or drop in wages—all this has led the losers of globalization to repudiate the political “centers” that have ruled the world powers for decades, even though the crisis has been contained. Right-wing political phenomena such as Brexit, Trump or Lega and the Five Star Movement in Italy are an expression of this situation. It is very likely that, faced with a new catastrophic situation in the economy, these political organizations will not respond in such an orderly and vigorous way as the “centers” did during the 2008-9 catastrophe. I think, however, that there are now new political phenomena emerging that we should pay attention to, because they could change the course of events. I’m referring to the uprising of the “Gilets Jaunes” (Yellow Vests) in France, which are the first progressive expression of the masses on the streets, after an avalanche of populist right-wing parties that seemed to be prevailing from the north to the south. What’s remarkable about the Yellow Vests is that they are an expression of hatred against the elites in an imperialist country with no xenophobic or nationalist demands and that they are not controlled, so far, by any right-wing force. It is a very interesting process in which our French comrades are actively intervening. This process in France is a source of increased risk and a warning for the global bourgeoisie, and it is likely to change the scenario and the questions we must ask if it continues to develop in a progressive way—and I hope it will.

Tony Norfield: It is worth considering the background a little in order to answer this question better. The 2008crisis took a financial form, with credit markets seizing up and a major financial panic affecting most countries. Although it was a big event having a global impact, it was relatively easy to sort out what I would call the “acute” phase of that crisis. This was done through the major central banks providing more liquidity, especially the U.S. Federal Reserve, and through trying to manage the merger, nationalization or closure of damaged financial companies. Later policy measures, especially those to force banks to have stronger balance sheets of banks and less leverage, will also have helped reduce the risk that another shock to the system will have the same drastic impact as before. But the “chronic” aspects remain. One clear sign of this is the higher levels of debt compared to GDP in almost all areas of the world than in 2007.

The precise form the next crisis/slump takes will have an impact on what response occurs, but I agree that it is far less likely that it will be seen as a joint problem for the major powers to try to resolve among themselves. It is important to realize that this is not just a Trump phenomenon, although he looks more like a wild card since the United States has much greater freedom to bully others. We can look not only to Trump in the United States, but also to Brexit in the U.K., to developments becoming more common throughout Europe, and elsewhere, to see that a large section of the population backs policies which lead to international conflict. A big political problem that the left faces today is the growth of aggressive nationalism.

Michael Roberts: On every major global issue, trade, climate change, immigration, the United States refuses to accept global cooperation because it does not want to be dragged into deals that would weaken its share of global power. So cooperation in a new slump is very unlikely, although, of course, most governments will adopt similar policies to prop up capital. The other new factor is the possibility of so-called populist parties coming to power that would disintegrate any international coordination.

Interview by Esteban Mercatante and Juan Cruz Ferre




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